David Chase, Small Business Majority

A Small Business Approach To Accessing Credit

& Healthcare Reform in California

About Small Business Majority

•  Public policy advocacy organization – founded and run by small business owners

•  National – based in California – with offices in Bay Area, Sacramento, Washington, DC and New York

•  Research and advocacy on issues of top importance to small businesses (<100 employees) and the self-employed

•  Very focused on access to credit and healthcare costs – top concerns in our recent research

The Credit Squeeze

•  Higher reserve requirements mean less money to lend for banks

•  Banks rather lend to larger companies because the effort is the same, and a perception that small business lending is more risky

•  Traditional collateral assets have been degraded (real estate and receivables).

•  FDIC approving very few new banks. Fewer banks means less credit.

Who Cares and Why?

•  Small business owners want to create new jobs, but need loans to get them going

•  Banks are being cautious – right policy for them, but that hurts small business and the economy

•  Policymakers trying to jumpstart the economy know small businesses typically produce the jobs that lead to economic recovery

What Should Small Employers Do?

•  Talk to your existing bank

o  Ask to speak to a lending specialist or business loan consultant

o  If your bank has refused you credit, tell them you will leave for a lender that offers credit.

•  Shop for a new bank

•  Small or medium sized community bank

•  Large bank that is small-business friendly

•  Banks with dedicated SBA specialists

SBA Loans

•  7(a) - Lending Program

o  Loan guarantee program o  Financing up to $750,000 from qualified

lenders

o Working capital, asset purchases and leasehold purchases

o Personal guarantees required from owners with 20% stake or more

o  10-year term

o  Available only to people with no other resources

SBA Loans

•  7(m) - Microloan Program

o  Loans funded entirely by SBA o  Financing up to $35,000 o  Funds use unrestricted; available to start-ups o  Typically loans come with required enrollment

in technical assistance classes o Program not fully funded

Small Business Lending Fund

•  Treasury Department initiative to deploy $30 billion to small and medium sized banks (part of 2010 Jobs and Credit Act)

•  Funding is based on lending practices (the more they lend, more $$ they will receive)

•  Participating banks listed at www.treasury.gov

o  31 banks (186 locations) in California

Factoring

•  What is factoring?

o  Using your unpaid invoices as collateral for a loan, which the lender collects

•  Ideal for new businesses or firms with strong client base

•  Dependent on credit history of clients

•  Beneficial for a quick-start

Main Street Partnership Banks Legislation

•  State tax dollars usually held by Wall Street banks

•  A partnership bank is established by the state and keeps those dollars in the state to be used to develop local business

•  Partnership bank acts like a banker’s bank; no direct-to-consumer loans.

•  Purchases loans exclusively from local banks to provide them liquidity.

•  Leads to more and stronger local banks; more lending to small businesses

How does a state bank work?

Main Street Partnership

Bank

Bank of Small Town Friends Bank Local Bank

North Dakota and Vermont

Vermont N. Dakota

Population 622,000 647,000

General Fund budgets (2009) $1.1 b. $1.56 b.

Unemployment (%, 2010) 6.2 3.2

Budget deficit ($24 m.) $400 m.

Banks (2009) 22 102 Deposits held by out-of-state banks (%, 2009)

65 24

Total state loan portfolio (2009) $3,100 m. $2,619 m.

Commercial/Econ. Development lending (2009)

$102 m. $1,333 m.

Net state banking revenue (2009) ($21 m.) $30 m.

Partnership Banks in California?

•  California estimated to take in $120B in 2011-12; most will sit in out-of-state bank on Wall Street

•  Assembly Bill 750 passed September 2011 o  Bi-partisan support

• Would have created blue ribbon commission to study issue of Partnership Bank in California

• Bill vetoed by Governor Brown

•  Governor asked the Legislature study the issue themselves, not create a new commission

Healthcare Reform for California Small Businesses

•  Tax credits available to most employers who cover their workers

•  California high-risk pool that sells insurance to individuals with pre-existing condition

•  Grandfather provisions to allow employers to keep plans they already have

•  Employer responsibilities for healthcare benefits

•  Cost containment provisions to cut waste and improve efficiency

•  Open marketplace to maximize choice and competition

•  Your questions and comments

Small business tax credits

•  In effect now (as of tax year 2010)

o  $40 billion in credits by 2019

•  Which businesses are eligible?

 Fewer than 25 full-time employees

 Average annual wages <$50,000

 Employer pays at least 50% of the premium cost

Small business tax credits

•  Tax credits on a sliding scale:

o Up to 35% of premium expenses for 2010–13

o  Up to 50% of premium expenses for any two years beginning 2014

•  Tax credits do not cover premium expenses of owners or their families

•  Tax credits can not be claimed by the self-employed

Small business tax credits

Our report: 456,500 CA businesses are eligible (80% of all businesses); 135,900 CA businesses are eligible for the maximum credit

Preexisting Condition Insurance Plan (formerly called high-risk pools)

•  Available to individuals -- incl. self-employed

•  Takes effect immediately (accepting applications now at www.pcip.ca.gov)

•  Eligibility: People who have been uninsured for six months and have been denied for a preexisting condition

•  California plan runs on federal funding ($761 million over 5 years) – No state dollars spent

•  Available until full implementation in 2014 -- no gap in coverage

Grandfathering: “If you like what you have, you can keep it”

•  A grandfathered plan is a health plan in which a small business was enrolled on March 23, 2010

•  Grandfathered plans do not need to comply with several insurance reforms, but do need to comply with some provisions

•  Regulations allow for making several changes (adding employees, changing carriers) without jeopardizing grandfather status

o  Significant changes (dropping benefits, etc.) is cause for losing grandfather status

•  Businesses with fewer than 50 workers – 96% of all businesses – are exempt from any requirement to offer insurance

Shared responsibility

•  As of 2014, businesses with > than 50 employees + not offering minimum coverage + at least one employee receiving a subsidy = must pay a fee

•  Two options on how the fee is calculated

o  $2,000 per # of employees minus 30

o  $3,000 for each employee receiving subsidy

Shared responsibility

Cost Containment – Cutting costs saves small businesses money

•  Exchanges leverage pooled purchasing power to lower premiums

•  Ensure that more $$ go to medical care

•  Premium increases are now reviewed by state

•  Incentives for prevention and wellness

o Grants for up to 5 years to small employers that establish new wellness programs

•  Other incentives for administrative efficiency and modernization (e.g. pay for performance)

•  Expanded coverage and individual responsibility requirement – reduce hidden tax

What is a Health Benefit Exchange?

•  One-stop shop web portal

Small Business Exchange

INSURANCE PLANS

EXCHANGE Choice

Comparison Billing

Tax Credits

SMALL BUSINESSES

•  Large marketplace to shop for commercial insurance

•  Compare plans for information about price, quality and service

•  Plans organized by level: bronze, silver, gold, platinum

•  Calculator to compare costs across plan options

•  Streamlined billing process

What is a Health Benefit Exchange?

•  Opening on January 1, 2014 •  Voluntary

o (Unless you’re a Member of Congress!!)

•  Individuals and small businesses eligible to participate

•  Exchanges designed by states -- or by federal gov’t if a state so choses

•  State-based exchanges mean increased flexibility and more input from small businesses and other stakeholders

•  Not a new concept - Business groups, non-profits and state gov’t already run similar programs in CA, CT, MA, NY, OH, UT

California’s Key Decisions

•  Bi-partisan legislation in 2010 created CA Exchange

•  Separate individual and small business pools

•  Exchange acts as active purchaser which will negotiate with insurers

•  Standalone government agency; exempt from some state personnel and procurement requirements

•  Governed by five member board: Secretary of the Health and Human Services Agency, two gubernatorial appointees and two legislative appointees

•  Strict conflict of interest requirements; unpaid

California Health Benefit Exchange

•  Current status: o Held several public meetings and webinars

o Hired former business leader as Executive Director; hiring more staff now

o Received $39M for planning; no state dollars spent

o  Stakeholder advisory panels providing input from small business owners and business organizations

o Planning meetings around the state in 2012 to collect feedback from employers et al.

o Will focus more on small business issues in January 2012

Decisions still to be made

•  Additional administrative services – Should the exchange offer other “human resource department” type services?

o COBRA administration

o Section 125 plans

o Flexible spending accounts

o Wellness plans

o Eligibility determination for tax credits and public programs

•  Brokers/agents - What role should brokers/agents play? How should they be compensated?

Decisions still to be made

•  Employee choice – Can employees select their own plans?

•  Risk management – How do we ensure a well-balanced risk pool?

•  Web portal – What features for the web portal?

o One-stop shopping

o Streamlined billing

o Tax credit calculator

Your input is essential now!

For more information

•  Our website: www.smallbusinessmajority.org

o  Information Summary

o  Detailed FAQ

o  Tax Credit Calculator

•  CA Healthcare Coverage Guide: healthcoverageguide.org

•  California Health Benefit Exchange www.healthexchange.ca.gov

•  National HHS website: www.healthcare.gov

Join Our Network

•  Erica Dowell, Network Coordinator

•  Email: edowell@smallbusinessmajority.org

•  Direct: (202) 535-3244

Connect with us!

@SmlBizMajority

Small Business Majority

Ways to Get Involved:

Contact

•  Receive a monthly newsletter

•  Share your story for media requests

•  Letters to the editor/Op-eds

•  State events/Roundtables

•  Fly-ins

•  Webinars for business organizations